Table of contents:
- 1 How does (successful) Social Trading work?
- 2 eToro
- 3 Wikifolio
- 4 ZuluTrade
- 5 Naga Trader
- 6 Provider comparison at a glance
- 6.1 How to become a Social Trading Follower?
- 6.2 Register – deposit money – invest?
- 6.3 From Social Trading Follower to Social Trader
- 6.4 Take off on the stock market with Social Trading
- 6.5 Social Trading – Opportunities
- 6.6 Social trading thus offers many advantages and opportunities for followers
- 6.7 Social Trading – Risks
- 6.8 Why Social Trading does not work – a review and outlook
- 6.9 But what went wrong?
- 6.10 What does it look like today?
- 6.11 Social Trading via Facebook, WhatsApp and Telegram
- 6.12 Conclusion on Social Trading
This type of trading, also often referred to as social investing, combines a network and a community of classic social media with stock market trading. In short, social trading platforms offer the opportunity for an open exchange of information about current stock market developments. But instead of a lively chat about different stocks, social trading goes even further and everyone has the opportunity to be a trader or a follower.
Followers follow the hottest traders – also called signalers – just like Facebook and Instragram. These in turn make their knowledge and their trades available to the platform and thus to their followers. With Instagram contributions are geliked, with social trading you can simply copy the investment ideas of your favourite traders.
How this works exactly, which types and platforms for social trading exist and which chances and risks are involved in investing via social trading, you can read in the following article.
How does (successful) Social Trading work?
Social Trading itself is not a trend of the new decade, but has been an integral part of the trading landscape for several years. Already five years ago, some of you may have become acquainted with the Wikifolios of successful traders. After that, other providers such as Etoro and Ayondo joined them. Whereby Ayondo has already disappeared again.
At that time, however, each platform pursued the same goal: to combine the advantages of social networks with a trading platform. For this reason, social trading itself is designed very simply so that it actually works like a social network without great effort for the followers. Social Trading fits perfectly into our time and is more than a simple trend. Instead, this type of investment has become strongly established.
In social trading – as briefly outlined above – two sides always meet. On the one hand we have the active social trader or signal generator, on the other hand we have the classic follower. The Social Trader is usually not an “amateur” who just happens to execute a few trades and is more or less successful. Instead, many of the signal givers are professional traders, asset managers or even firmly anchored financial media. Nevertheless, there are of course also some hobby traders and private investors who share their personal investment decisions with the social network.
The sharing of these investments is kept just as simple so that the followers can really understand it. The signal giver shows all his trades in a publicly accessible sample portfolio (always only accessible to users on the respective platform). This means that all purchases and sales of the signal giver are visible to the community, regardless of whether they involve the purchase of shares or the liquidation of an option. In order to make the long-term success of a trader visible, the respective strategy pursued and the performance of this model portfolio are usually completely and without gaps comprehensible. Thus, as a follower, one can see whether a social trader has been successful for a long time – after all, this suggests the thesis that this trader will also be successful in the future.
It is exactly the same with social trading. Without the opposite side of the followers the whole system would not work. Ultimately, a follower can be anyone who is old enough to trade on the stock exchange and registers on the respective platforms.
If you want to trade successfully as a follower, you can search for one or more suitable signal generators via the platform and examine their investment strategy. If you like the strategy and the performance is also convincing, the follower can copy this strategy, for example, and depends on the success – but also on a possible failure – of the social trader.
But beware: With any kind of stock market trading, you should not jump in immediately, but first observe, compare signal generators and analyse their performance and strategy. Social Trading was created for easy investing, but easy does not mean imprudent!
There are basically two types of social trading – copy trading and mirror trading
The Copy Trading
Copy trading refers to a classic copy and paste as we know it from everyday life. With the subtle difference that copy and paste can lead to major problems at a university, for example, and is undesirable. In copy trading, on the other hand, copying is very desirable and the most important part of the strategy.
Roughly speaking, in copy trading – as always – there is a signal generator that publishes all its trades. Now the follower can look at the purchases and sales and decide for himself which trade he wants to follow and which not. So you pick out individual trades. The follower follows individual, freely and independently selected trades of the signal generator.
The Mirror Trading
Mirror trading is again a little different from copy trading. Of course, a signal generator is selected here, which the follower imitates the investment strategy. However, no individual trades are picked out, but rather the entire strategy of the social trader is mirrored (hence mirror trading). The follower automatically follows all purchases and sales of the signal generator. Mirror trading is therefore the much more passive form of social trading, because as a follower you don’t actually have to do anything.
Some platforms go even further and use these variants to create the options of “Copy Portfolio” or “Copy Dividends”. If the social trader who is followed then withdraws an amount from his account, the follower automatically receives a correspondingly proportional share of his account. This is even more passive than mirror trading.
Two ways for newcomers
The big advantage of social trading is that as an inexperienced investor you get the chance to profit from the knowledge of other traders. This means that you may not need to spend as much time acquiring the necessary knowledge about the stock market and finance or even have completely penetrated all topics of trading. Especially if you don’t have much time yourself but want to invest, social trading can be a welcome entry and stay in the stock market.
However, success depends on two components: On the one hand, the respective influencer – signal generator – social trader must be successful in order for a follower to profit from it. On the other hand, a follower must make a wise choice of role models. Those who blindly throw themselves into this type of investment are likely to bounce hard.
Sharing in the success of top traders by copy and paste
A follower can participate in the success of the respective signal generator in various ways. With eToro the trades of the social traders are directly replicated and taken over 1:1 for the follower. Depending on the follower’s wishes as copy or mirror trading. So with mirror trading the trades are automatically replicated.
Other platforms such as Wikifolio take a small detour. There, a follower must first buy a certificate on the sample portfolio in order to participate in its success. However, these certificates also reflect the strategy of the signal giver 1:1 and can ultimately be traded like normal securities. For this reason, Wikifolio certificates can also easily be added to an existing custody account of the bank or broker.
Technically speaking, there are differences here, but in practice this has no effect. Because with both methods the result is ultimately the same. All trades of a signal generator are automatically tracked for the follower. This means that the social trader’s profits and losses are also booked 1:1 into the follower’s accounts or, in a special case with Wikifolio, shown in the respective certificate.
Success as Follower
As a follower, you can therefore definitely profit from the success of the experienced stock market professionals, as they usually base their investment decisions on meaningful analyses, chart techniques or similar and thus do not make any ill-considered purchases or sales. Of course, this does not automatically mean that things are always going uphill and you will be successful in any case. The probability that an experienced stock market trader will be more successful than a newcomer is quite high, which is why it might be a good idea for the latter to take the path of social trading.
A social trader naturally has a great interest in his trades being successful. On the one hand, he earns his money and if he trades full-time, even his entire livelihood, on the other hand the Social Trader receives a commission from the respective Social Trading platform. The more successful the Social Trader is and the more followers he has, the more commissions he gets.
As already mentioned, the social trading platforms differ slightly in the way copy trading is handled. However, this difference does not limit a potential follower, which is why one can draw from the full range of possibilities. In principle there are many different platforms and the choice is quite large. However, there are clear market leaders, which is why we would like to focus on a small but fine selection of different platforms. That’s why we will introduce a few of them to you below and also discuss the advantages and disadvantages of the platforms.
eToro is THE market leader in the field of social trading in Germany and is active in 140 countries worldwide, according to its own statements, which means that the community can fall back on millions of users. Here it is clear that the more people are integrated into the network, the more the entire community can benefit. Basically eToro offers its users a very wide range of services. There you can not only use normal shares if you want to put together a portfolio as a signal giver or follower, but you can also invest in the foreign exchange market (so-called forex transactions), CFDs (contracts for difference), ETFs (exchange traded funds) and ETCs (commodity securities). For a few months now, it has also been possible to trade in crypto-currencies (such as Bitcoins).
eToro is also cleverly exploiting its market position and is now appearing on the net very much. Especially advertising on other social media platforms like Youtube and Instagram is creating new reach and attracting customers. If you can hardly do without social media anyway and rely on the information and tips of the social network, you can do the same when investing.
A little tip: Just watch a few Youtube videos – sooner or later the eToro ads will turn up and it will quickly become clear that the aim here is to specifically turn users of the typical social media platforms into customers of the social trading platform.
With eToro social trading experiences an even deeper form than “just” copy and paste of investment strategies. There, both followers and social traders are provided with a social newsfeed which, similar to Facebook, provides information about the latest developments. Thus, the feed displays current reports, news, activities and status messages and users have all the important processes and developments of the community at a glance. This newsfeed makes it especially easy for followers to follow the social traders, because you hardly ever miss a story. As befits a good social network, this newsfeed is of course individually customizable, so that you get to know what you like most.
Besides the mass of users and the wide range of trading possibilities eToro also offers a very good filter system for the search function. Here you can filter according to various characteristics, such as profit, risk rate, trader location and much more. This is to support the traders and followers optimally in building a very strong portfolio.
In terms of security, eToro has the advantage of being headquartered in Cyprus, which is why the platform is subject to EU rules and regulations. As the Cyprus head office is responsible for business in Germany, the platform is covered by a deposit insurance up to 100,000 Euro, which is generally regulated in the EU. This also makes eToro a very secure and reliable network for the private investor.
Three programs for copy trading
In general eToro offers three ways to participate in social trading:
- Copy Trader System
- Popular Investor Program
- Copy portfolio investment strategies
With the Copy Trader system, the customer selects a signal generator to be copied. With just one click, the customer is then able to trade the signal generator in real time.
The Popular Investment Program is a good tool for very experienced traders, as they can build up additional income through social trading. As the name suggests, this is a popular approach. The more users adopt a trader’s investment strategy – so the more popular it is – the more money the trader receives from eToro.
The copy portfolio investment strategy is more about long-term customer retention through a real investment alternative. It involves offering completely finished portfolios that can follow different financial strategies. The follower then selects the strategy that suits him or her and thus follows the appropriate portfolio.
Another important advantage of eToro is the in-house app which runs on both Android and Apple devices. The improved mobility and accessibility via smartphone means that followers and investors can be informed very easily and, above all, quickly about all relevant developments. Customers are notified in real time of important changes in the financial markets and can thus react quickly.
Deposits and withdrawals
If you want to become active on eToro from Germany, you have to make an initial deposit of $200 after registering (this amount can vary depending on your residence in the world). Every further deposit must then be at least 50 dollars.
Deposits are basically free of charge and can be made through many different channels like PayPal, bank transfer, credit card etc.
Withdrawals are no longer free of charge and a $25 fee will be charged. As a rule, the payout will be made using the same payment method as the deposit.
Anyone who wants to invest on the stock exchange will always have to deal with the fees charged by brokers and providers. Of course, a social trading platform also earns its money through fees, which is why we should also take a little look at it here.
In principle, investments in shares are not subject to fees. However, this can change depending on the long or short position (e.g. with leverage). There are no management fees.
Foreign exchange has certain smaller spreads.
The spreads of ETFs are regulated uniformly. These are 0.09% per page. However, there are no management fees or ticket fees.
For crypto-currencies, different fees apply depending on the digital currency.
Similar to the crypto-currencies, the fee for the indices also differs depending on the trading instrument.
Progress with Social Trading – Continuing education with eToro
A big plus of eToro is the Trading Academy which allows eToro’s customers to develop their business in a comprehensive way. Especially for beginners who start trading through social trading this academy offers a good opportunity to learn more and more about the actual trading.
The program of the eToro Trading Academy is large and offers webinars and eCourses in addition to extensive teaching material for beginners and advanced traders. It is complemented by countless trading videos and tutorials, which is why the Trading Academy can be considered a very important cornerstone of eToro.
eToro offers an easily accessible customer service for customers and for those who want to become customers. The help center offers typical FAQ information, but you can also send your own questions to eToro by email. Since customer service is very important there, you’ll always get a quick answer and the feeling that the customer is important. If you’re already an eToro customer you also have the possibility to get in touch with the customer service via live chat using your logged in account.
eToro is rightly the market leader in social trading because they offer a comprehensive program at all levels at fair and favorable trading conditions. As a social trader you have a good chance to generate a small to large additional income, as a follower you meet many smart people, ideas and investment strategies. The fees are kept low and do not deter the newcomer to the stock exchange. The only drop of bitterness there is the high fees for payouts.
However, the customer service is easy to access and the social newsfeed offers a sense of social media integration, which is why eToro quickly creates a real social networking feeling. Great is the idea of the Trading Academy, which offers a rich and helpful offering.
Another very popular social trading platform is Wikifolio. Basically Wikifolio is aimed even more at more advanced traders and investors who can publish so-called Wikifolios on the platform. These Wikifolios map the investment strategies of the experienced traders. Here, a little less attention is paid to the stock market newcomers.
However, these should of course not be completely excluded from Wikifolio. Through the Wikifolios presented there, beginners gain insight into the trading strategies of the experienced professionals and can thus also copy their strategies. To do so, they then acquire the corresponding Wikifolio by means of a certificate. As with eToro, one advantage is that beginners can easily copy the strategies of successful traders. A certain amount of security is also offered as a Wikifolio has to meet strict requirements to be listed – i.e. can be bought. This protects against rather bad and unsuccessful signalers and their strategies.
Conversely, however, this does not mean that all Wikifolios are successful with blind copy and paste.
Unlike eToro, Wikifolio’s Wikifolios are issued as certificates and can be traded as such on the stock exchange. This means that investors buy an “endless index certificate” rather than shares on this social trading platform. However, the certificates are largely hedged, as the possible defaults and issuer risks are reduced. This is because there is a risk that should not be underestimated in normal certificate trading. Since certificates are not the typical product for newcomers, Wikifolio is designed to prevent certain risks.
In itself, the goal behind this platform cannot be distinguished from the others: Both social traders and followers want to increase their invested capital and therefore invest successfully. Both sides therefore have the incentive to participate through successful Wikifolios. The followers book their profit by increasing the certificate, while the Social Traders on Wikifolio also earn money through their performance. The more followers and the better the performance of the posted Wikifolios, the higher the commission and remuneration of the signal generator. That’s why this platform offers the same incentive for the traders as eToro.
Wikifolio works with a comprehensive transparency because you can see what’s going on at any time. Trading there is also done in real time, which means that there are no disadvantages compared to normal stock market trading. This makes Wikifolio a good opportunity for social trading, as it brings together experienced traders and newcomers to the stock market.
What types of Wikifolios are there?
In general, there are many different types of Wikifolios, in order to be able to offer a wide range of products to the broad mass of customers. At this point, we will only briefly introduce the different types. For more information about Wikifolio, we recommend the article Wikifolio – what is behind this social trading platform? by Maximilian Lindner.
The classic Wikifolio is published on the platform by private traders. To do so, the traders must be of legal age and transfer their trading strategy into a corresponding portfolio. A social trader benefits from the platform especially if he gets some followers here. Therefore – as always with social trading – the idea, the strategy and the success must be visible. Many Social Traders at Wikifolio are themselves employed in the financial world and therefore have the appropriate experience.
Wikifolios with self-regulating organisation
This type of Wikifolio is marked on the platform with a corresponding “SRO” for self-regulatory organisation. These are Wikifolios from Swiss asset managers who are subject to the Money Laundering Act.
Asset manager Wikifolios
These are Wikifolios of professional asset managers who make their expertise publicly visible. Anyone who can prove that they have the appropriate licence is given a special label on their Wikifolios. This shows, of course, that trading is the bread and butter of the day.
These are sample depots of various media companies that are active on Wikifolio.
Wikifolio topics cover specific industries and investment areas. These can be, for example, compositions for medical Wikifolios or for sustainability Wikifolios. The aim is to bundle the expertise of individual traders in their subject areas.
An umbrella Wikifolio describes the implementation of the trading strategy in which only Wikifolio certificates are traded. So to speak a Wikifolio for trading Wikifolios. The advantage of such a product is that it is even more widely spread than a single investment in just one Wikifolio.
The social trading platform Wikifolio is free of charge for followers and signalmen. Simply create an account there and you can get started.
Trading within a Wikifolio is also free of charge. There is a fee when you invest in a Wikifolio certificate. However, as with normal certificate trading, the fees are already integrated into the price of the certificate. This is noticeable, for example, by a certain spread (difference between the ask price and the bid price).
The fees for Wikifolio therefore consist of two main points. On the one hand, the certificate fee and, on the other, the performance fee. However, in order to make the platform as attractive as possible for investors, there are no issue surcharges or other costs.
The certificate fee of a Wikifolio is 0.95 percent per year and is charged accordingly for each day proportionately to the market value of the certificate.
The performance fee is suggested by the traders and then set by Wikifolio and the partner exchange Lang & Schwarz. This fee usually ranges between 5 and 30 percent. In most cases, however, this fee is only incurred if the Wikifolio certificate reaches a new annual high.
For investors, of course, the security of the respective provider always plays a major role when choosing the right platform. What good is it if you make 50 percent profit, but the provider is dubious and you never see your money again?
With Wikifolio you don’t have to think about this either as a trader or follower. The Wikifolios are a product of Lang & Schwarz AG and are therefore generally considered more secure. They are subject to the classic deposit insurance up to 100,000 euros.
However, it would be a bad bank if it did not protect itself in the same way. For this reason the risk positions are hedged. In this way, the bank hedges itself for correspondingly resulting obligations from the business with Wikifolios. However, this is the bank’s side. The follower is protected by the fact that a so-called “obligation to make additional contributions” is no longer permitted by law in certificate trading. Translated, this means that you cannot lose more money than was invested. Thus Wikifolio can be considered safe even in the event of failure.
Wikifolio is a good and solid provider in the field of social trading. You can participate as a social trader as well as a follower in the possibilities of a community and trade accordingly. The platform offers many different ways to trade Wikifolio certificates, so there should be something for every type of investor. The search for suitable Wikifolios, however, proves to be difficult and is not always as transparent as Wikifolio might like to be.
One limitation of the investment option is the pure trading of certificates. This is the special feature of Wikifolio and can have both advantages and disadvantages. In general, it is first of all a different approach. However, this approach tends to limit the possibilities for investors and is therefore worse than eToro. However, the certificates are not exposed to issuer risk, which in turn significantly enhances the methodology.
ZuluTrade advertises its social trading platform with the slogan “Invest with the best” and thus hits the mark with the meaning of network trading. The goal of ZuluTrade is to offer a competent and broad community for social trading. Although eToro and Wikfolio are better known and have been around for a longer time, ZuluTrade wants to convince especially with a simple and innovative handling.
The principle of ZuluTrade is nothing new compared to the other platforms. Social traders meet followers here as well. The trader connects his account with ZuluTrade, shows his achieved results on the stock exchange and then competes with all other traders on the so-called performance side. The followers can view these strategies and develop their own strategies from them. From copy trading to mirror trading, everything is possible with Zulu.
ZuluTrade therefore relies heavily on the network idea and wants to be understood as a social network for investing. You can comment and evaluate the different strategies and get in contact with other members. Especially beginners can build on this and refine their own trading strategies. ZuluTrade also offers very positive support with important guides and video instructions.
How does ZuluTrade work?
In order to trade on this platform a classic registration is necessary. You create a user account, where you can choose between two account types. Either you choose the account “Profit Sharing” or the account “Classic”. Then you choose the broker you want to work with or where you already track your stock market activities. If you do not have a broker account yet, you can also create an account with the desired broker via ZuluTrade. If everything works out, you can start trading after two to three working days.
ZuluTrade sees itself more as an intermediary and less as an independent provider, since minimum deposits, base currencies, etc. depend on the respective broker and not on ZuluTrade. However, a minimum balance of $100 must be deposited to ensure interaction between ZuluTrade and the broker.
After a successful login, ZuluTrade allows you to search for suitable traders whose strategy you would like to copy, using various parameters and filter functions. For example, you can focus on the ROI value (Return on Invest) or the risk behavior and get the appropriate search results. Then you click through the lists and can analyze the individual traders even more closely. If you decide to become a follower for a trader, you choose the amount of capital, copy the desired strategy and the investment has already begun. The trading at ZuluTrade runs in real time like the other providers.
A helpful tool at ZuluTrade is the simulation function. Here you can test the strategies of social traders and find out through various parameters whether you could be successful with your own strategy. This offers the possibility to try out a little bit without having to spend real money.
At ZuluTrade you can act quite freely as a follower and set your own stops, for example, to minimize your personal risk and at the same time act more independently. If you compare this with Wikifolio, for example, you are much more free in your investment decisions. At the same time, the trading products are very free and you can invest in everything that the social traders invest in. There are virtually no limits.
ZuluTrade is a social trading platform that sees itself primarily as a network. In the foreground is the bringing together of traders with followers, which is why there is the versatile integration of different broker accounts. The many possibilities for both traders and followers are convincing, although the transparency of fees and costs leaves a lot to be desired. This is because the fee structure is primarily passed on to the own broker.
The model of the two accounts (classic vs. profit sharing) offers traders the possibility to have a stronger influence on their own commission. Those who dare to convince with successful performance can earn more in the profit-sharing model. In general, both models work again according to the normal pattern: Whoever has many followers earns more money.
Unlike eToro or Zulu, the Naga Trader specializes in CFD trading and forex trading. It combines a classic broker for these products with the aspect of social trading.
As a company founded in 2015, Naga Trader is significantly younger than the competition, but therefore shows itself to be a more modern social trading provider that has already made a name for itself in the scene. The 750 different tradable financial instruments and an impressive trading volume of around 5 billion per month speak for themselves. Among the social trading platforms, Naga can be described as very good, especially in the area of crypto currencies. Here, advantages over the other social trading providers are visible.
However, the trader does not offer the possibility to trade with stocks, futures or warrants. Especially shares are the financial product that newcomers to the stock exchange come into contact with first. Naga Trader offers no contact points for the classic beginners. For this reason, social trading at Naga can rather be understood as an exchange for advanced investors.
In principle, every trade made by the signal generators can be copied. In order to find the right signal generator as a follower, there are comprehensive search functions as with the other platforms.
Costs and fees
Basically an account with the Naga Trader is free of charge. However, bank transfers to the broker account may incur fees. This is mainly related to the own bank and its conditions.
Otherwise, the Naga account is free of charge, as well as order cancellations or changes are free of charge.
All trades are subject to typical CFD trading fees, for example 1€ per 1 point in the Dax30 Cash Index. The situation is similar for crypto currencies.
The Naga Trader is more a broker than a social trading platform. This is clearly noticeable in almost all applications. Although the Trader can also be used as a social trading platform, other providers offer a much broader and better product portfolio.
The narrow limitation to CFDs, Forex and Kypto trading is no problem for experienced traders, but for newcomers the Naga Trader is the wrong place to go. Because for inexperienced traders the possible financial instruments with the Naga Trader are not the right entry instruments. Unfortunately you won’t find an academy or helpful user tips like eToro and ZuluTrade here.
Provider comparison at a glance
|eToro||– large network|
– trading academy
– many strategies and asset classes
– good customer service
– fair conditions
|– high fee for withdrawals|
– minimum deposits
– as a beginner you first have to get an overview
|Wikifolio||– Large network|
– Many different types of wikifolios and strategies
– Very fair conditions
– No fees, minimum deposits etc.
– No issuer risk despite trading in certificates
|– Overview is difficult|
– Trading only possible via certificates
fee sometimes very high and misleading – Ranking list principle sometimes leads to consumer deception (see consumer protector Niels Nahauser)
|ZuluTrade||– Numerous options for investing|
– Assistance for beginners and innovative
– Two-account model as a choice of commission for traders
– Search function
|– Fees linked to your own broker|
– despite the search function for beginners, rather opaque
– Similar ranking principle as with Wikifolio can lead to deception
|Naga trader||– Broker and social trading platform (albeit more broker)|
– Specialist for CFDs and Forex
– Low fees Real-time trading (especially important for the products offered)
|– not for beginners|
– less social network than other providers
– hardly any interaction functions with other traders / followers
– product selection rather limited
How to become a Social Trading Follower?
As a newcomer to the stock market, the world of shares, derivatives and Co can be very confusing and therefore social trading seems to be a perfect opportunity. But how exactly does one become a follower?
If you decide to profit from the investment strategies of an experienced stock market professional, you only have to make the step to become a follower. This of course requires a decision for the right provider. Of the four providers mentioned above, each has its advantages and disadvantages and it is recommended to choose the best overall package. Beginners will probably find eToro to be the best choice as there are a number of social traders with a proven track record of success and the Trading Academy helps build knowledge. Of course the other providers also offer a good basis to get into stock trading and social trading.
Register – deposit money – invest?
If you want to become active as a follower, you have to get an account/account there after choosing a provider. This is quickly done with all providers and is not a big challenge. Once the account is in place, you can start to browse through the offer. However, real trading only works when you deposit money and it is also available on the social trading account.
The first sensible step is to familiarise yourself with the new environment. To do this, it is advisable to click through the most popular profiles of social traders and analyse their strategies. Especially networks like eToro and Wikifolio offer almost endless possibilities.
Those who click through can also start networking and thus learn and be informed even better from others. All networks offer the possibility to get in contact with other traders and followers through discussions. For example, trading strategies can be discussed before investing.
If you don’t want that, you can of course go straight to copying the different portfolios of the most important and best traders.
The best traders and signal generators are easily found on the social trading platforms. At eToro they call this tool “Open Book” where you can see all trading activities of the whole network. There you can filter traders and make a selection. By clicking on the traders you can see the performance and history of the social traders on all platforms. Then you can also use the filter search to quickly select those who have had the best success for years and then you can join the strategies of these traders.
On almost all social trading platforms you can also compare individual traders to find out even earlier who you want to copy. After all, the platforms deliver many values and you want to follow the best.
The most important tool you need here is time. Time is money does not come out of nowhere and also in social trading you should not start blindly and without any preliminary work. That’s why it’s worth investing a certain amount of time in the analysis of individual profiles, portfolios and strategies.
Once you have found the right trader, you only have to decide whether it should be copy trading or mirror trading and you can start trading. The portfolio of the selected trader is taken over, the desired amount of money is invested and thus the step to social media investing is made. Afterwards you can watch how the trader acts and how this affects your account.
Of course you can follow many different traders, so that different strategies can be kept in view and benefit from a further variety. This is type-dependent and of course has to do with your own objectives.
From Social Trading Follower to Social Trader
Social trading is not only interesting for one side – the followers – but must of course also offer advantages for the social traders. Because of the already mentioned commissions it can be worthwhile to go among the Social Traders. An investment influencer lives mainly from the followers and therefore it should be clear that a newcomer will hardly become a successful role model. After all, the point is that others should copy and imitate your strategies.
But of course you can go from follower to social trader. The platforms also offer this possibility and no special training is expected to act as a signal giver.
So if you want to change sides, you should think about your own trading strategy. The more understandable this strategy is for newcomers to the stock market and the more it stands out from other strategies, the more likely you will get followers for your own portfolio. As a successful social trader, you have to ask yourself what the followers might expect. An inscrutable, albeit successful strategy can deter some potential followers. Instead, it should rather be “keep it short and simple” – goal-oriented, sensible and consistent! If you change your strategy daily, you will hardly be able to attract followers.
But there is one thing that stands out above all others: Those who act as followers want to earn money. Nobody does trading with the desire to lose money. No matter how unusual, consistent, easy to understand and “foolproof” the Social Trader’s investment strategy may be – those who are not successful will not be able to establish themselves as model traders either.
Social trading thrives on social exchange – just like Facebook thrives on discussions and Instagram thrives on images. But that’s why both followers and social traders should be aware that this is all about money. A successful trader does not share his tips in order to help others completely unselfishly. Therefore it should be the goal of every Social Trader to get and keep as many followers as possible.
In the end, a Social Trader is an influencer who profits and lives from the fans and followers. If you want to make the way from Follower to Social Trader, you should always be aware of this.
Take off on the stock market with Social Trading
Social trading offers great opportunities to make it to the stock market. At school you learn from your teacher and your classmates, at the stock exchange it is best to learn from those who are already successful. Social trading platforms offer exactly this possibility and help to gain insight into the comprehensive topic of trading. Now one can ask oneself if one spends several months and years reading the common books and acquiring knowledge. Developing strategies, discarding them, changing them and starting all over again.
Or one goes the way of social trading. This can certainly be a good start, but still requires a certain amount of analysis and sensitivity. However, anyone hoping to make a quick buck in the process is in the wrong place.
The success of social trading depends on the choice of signal providers and, of course, ultimately on their success. For this reason, risks must also be weighed up in social trading in order to maximise the opportunities.
Social Trading – Opportunities
Social Trading offers great opportunities to get a first foot in the door of stock exchange and stock trading. After all, every beginning is hard and you have to find a way to start at all. Far too often investors cry and whine about missed opportunities. Social Trading offers a relatively soft start where you don’t have to be an investment banker to become a follower.
With Social Trading you imitate trading strategies and therefore have the opportunity to own a fund manager who does not cost horrendous fees. However, the choice of the appropriate signal generator plays a decisive role.
The greatest opportunity of social trading is therefore to generate a profit through the knowledge of others.
As a follower, social trading offers the chance to take the first steps in the field of trading or to have a further component for the diversification of your own strategy.
A big advantage of all followers is the possibility of low capital investment. You can start with little money and keep the risk within limits. Those who start by investing in individual securities should always act with larger sums, as the fees can be quite high. At the same time it is difficult to diversify there. However, social trading helps to achieve diversification with low capital investment.
Of course, there are also advantages for signal providers in social trading. The exchange with other traders is also an advantage for investors and professionals experienced in the stock market, because you can experience and learn new things. At the same time, contact with inexperienced followers can help you to put yourself in their shoes and to build up your own investment strategy in a more transparent and understandable way. This promises more followers.
More followers increase the reach of the strategy and, ideally, create even more followers. This is then reflected in the payment of the Social Trader, who generates his commission through followers.
Thus, social trading is basically an attractive possibility for the signal giver to create an additional secondary income.
Social trading thus offers many advantages and opportunities for followers
- Start possible with little capital investment
- no in-depth stock market knowledge necessary
- low fees from the various providers
- very transparent investment
- Learning from professionals
- Further training opportunities
- Adoption of successful strategies instead of developing own (possibly unsuccessful) strategy
- Fund managers against low fees
There are also opportunities and advantages for social traders:
- Exchange with other traders
- Followers increase the reach of their own strategies
- Earning opportunities through commissions
Social Trading – Risks
Where there are advantages, there are unfortunately also disadvantages – opportunities of social trading on the one hand and risks on the other.
A first risk that investors can experience as followers and social traders is the default risk of the bank. As in other trading, there is a certain issuer risk with certificates. This risk is greater with Wikifolio than with other providers, as Wikifolio operates via certificates.
A further risk for followers is certainly the fact that there are a number of social traders who can all make a good impression at first glance, but do not have to. The comparison between the traders is enormously important and yet cannot protect you from following the wrong signalers. Some social traders are also hyped because of various other characteristics and therefore have a large number of followers. This does not necessarily mean that this trader is better than all others.
The biggest risk for followers in social trading is betting on the wrong horse and therefore not making the profit you expected. In the worst case, this can also lead to the loss of the money invested. No social trader can look into the future and therefore only makes good decisions. You have to reckon with it and if it happens you have to live with it. There are always moments when the stock market world shows a negative side, which is why it can also go downhill. Then even the best signal giver is of no use.
Another disadvantage is that there are a lot of things to take into account, just as in a company valuation. As a result, the analysis of portfolios can quickly become confusing and misleading. A beginner quickly loses the overview and makes the wrong decisions.
Of course, there are also certain risks for traders and signalmen. Those who do not consistently deliver a good performance and generate success and profit for their followers are easily replaced. After all, there are many other signal givers. This pressure can also have a negative effect on strategies and decisions.
It is also important for many people to find a scapegoat quickly when things are not going well. Whoever trusts a social trader as a follower will also quickly identify the bad guy when things go wrong. This can lead to unpleasant discussions and news for the signal giver.
Ultimately, a Social Trader can be very successful, but still not deliver the exciting or completely understandable strategy that makes followers happy immediately. You already have the problem that success does not automatically lead to followers.
Therefore, social trading also offers disadvantages and risks for followers:
- Certificates (mainly Wikifolio) involve an issuer risk
- Comparison between traders can be very difficult
- Valuation and comparison of different portfolios quickly confusing and misleading for beginners
- some social traders experience a lot of popularity without being able to justify this with long-term success
- you can bet on the wrong trader
- Knowledge of supposed professionals does not protect against a possible loss
There are also risks and disadvantages for social traders:
- steady performance and success, otherwise followers are lost
- wrong investment strategies or confusing strategies do not attract followers
- if followers do not achieve the success they would like, this can quickly lead to unpleasant discussions
Why Social Trading does not work – a review and outlook
About 4 ½ years ago, our colleague Dominik Schwarzer dared the self-test and carried out a test of social trading at ZuluTrade. His sobering conclusion came sooner than expected – because instead of making money by copying and imitating the trading strategies of the professionals, Dominik ended up with 600 euros less than before. This is clearly not the trading approach that one wants and should follow.
But what went wrong?
While the traders on the platform took profits very quickly and let their losses run long, the situation for the followers was the opposite. Through stop-losses the follower quickly loses his money. The signalers on the other side, however, always have good balance sheets because of the fast profits and sat out losses, so one could believe that they always only win.
Another problem is the high margins. Here one would have to invest considerably more capital in order not to reach the stop-loss. For the hobby investor, however, this is an order of magnitude that is rarely reached. Likewise, one should follow all trades of the signal giver and not just select individual ones. Otherwise you will only participate in the end in the losses and not in the successful trades. Sure, it could also work the other way round, but that is just as pure luck.
Dominik summarized the basic problem conclusively and at the same time saw the provider as a rather intransparent partner for such a trading strategy. One does not know the traders personally. You can see many facts, but not everything. Therefore you never know 100% which strategy is being pursued and whether this can change in seconds. As a follower you either have to take this risk or you stay outside.
Dominik paid his short excursion into the world of social trading with 600 Euros and has since then kept his hands off it.
What does it look like today?
Dominik’s experiences had been made at ZuluTrade. But this provider has developed enormously in the last few years and has worked on transparency in particular. You will never get to know the traders personally, but other parameters help to make the decisions to follow or not to follow someone more meaningful.
But social trading has developed in general: eToro, Wikifolio and ZuluTrade are big providers who can enthuse the masses. On all platforms there are many social traders and followers who stand opposite them.
The platforms increasingly see themselves as a kind of Facebook and Instagram for stock exchange trading. This is how customers are addressed and how customers are retained. But all this does not mean that social trading automatically means success. It can go wrong like with Dominik, but the opposite can also happen.
Social Trading has developed and will continue to develop. And if only the aspect of exchange through comments and discussions on this and every investment strategy is possible, this is already a stronger exchange than in a private environment.
Others, however, go even further and shift the copying of the trading strategy into the purely social networks, in order to then implement it with their own broker without a social trading platform.
Social Trading via Facebook, WhatsApp and Telegram
Social Trading knows many more faces that are not directly reflected in a provider. Facebook is full of groups in which there is a lively exchange on different trading categories and strategies. The digital world makes it possible and creates the conditions for not having to blindly trust an investment advisor. Nor do you have to think for yourself, but can benefit from the knowledge, experience and assessments of others. There is nothing wrong or bad about this – some people unfortunately think so – because you don’t have to reinvent the wheel every time to act successfully.
For this reason, social trading is a very strong component that has become part of the everyday life of some people. After all, Facebook groups are giving rise to new networking opportunities via whatsapp and telegram to keep up to date in real time.
eToro, Wikifolio and Co. do nothing else – they just bring the traders and followers together much easier. That’s why social trading has a bright future ahead of it.
Conclusion on Social Trading
Social trading is a big topic and is currently experiencing great popularity. The advantages of the whole system can hardly be denied and the idea to use the typical networking of social media channels for investment is contemporary and offers greater opportunities than the pure way via the investment advisor.
The advantages are certainly the simplicity and transparency of the networks. Everybody can benefit from the knowledge of others without much knowledge, imitate and copy their strategies and thus have long-term success. In addition, there are countless possibilities, endless signal generators on all platforms and the chance to find the right strategy. The small amount of capital that you can start with is of course also helpful.
An entry into the stock market and trading can therefore work very well with Social Trading.
However, one should not ignore the risks, because return comes from risk and this is not completely ignored when investing in social media. Just trusting others can backfire and therefore it does not have to be an automatic success. However, the probability of success by imitating and copying an experienced investor is greater than if you put all your eggs in one basket as an inexperienced newcomer.